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Micron Just Gave Another Green Flag for the AI Stock Race

Jul 9, 2024 | blog

Micron Technology‘s (NASDAQ: MU) inventory has been on an epic 160%-plus run for the reason that starting of 2023. The semiconductor bear market is coming to an finish, and along with industrywide progress preparing for the following run increased, demand for accelerated computing and synthetic intelligence (AI, thanks Nvidia (NASDAQ: NVDA)) continues to ratchet up, too.

Nevertheless, traders grew barely cautious following Micron’s third-quarter fiscal yr 2024 replace (for the three months led to May 2024). The inventory pulled again a bit from all-time highs. The numbers have been strong, although, giving a inexperienced flag for AI chip shares to proceed rocking and rolling.

Were Micron’s financials actually that good?

Micron is one in every of three main gamers (Samsung and SK Hynix in South Korea being the opposite two) in AI reminiscence chipmaking. These days, the funding group has develop into hyper-aware of 1 particular reminiscence product known as HBM3e (the upgraded model of the third era of “high-bandwidth memory”).

HBM3e has garnered consideration thanks largely to Nvidia’s AI chip techniques, that includes stacks of those superior reminiscence chips surrounding an Nvidia GPU (graphics processing unit, or extra particularly on this new period of AI, an accelerated computing logic chip). Demand for HBM is doing lots of heavy lifting for Micron proper now because it has labored its approach via an general bear marketplace for semiconductors during the last two years. Revenue rallied 82% yr over yr to $6.8 billion, and adjusted internet earnings was $702 million in comparison with a internet lack of $1.57 billion a yr in the past.

Micron nonetheless has an extended solution to go to dig itself out of the bear market gap. However, by fiscal 2025 (which is able to finish in August of subsequent yr), administration says it expects a “substantial” new all-time income report and “improved” profitability.

This is a major outlook improve for Micron given the present state of its financials. New report gross sales over and above the final peak in 2022 are indicative of serious progress throughout this AI-fueled cycle.

MU Revenue (TTM) Chart

MU Revenue (TTM) Chart

Micron indicators the place Wall Street’s cash is shifting

Micron’s final replace on chip gross sales is related to a far wider viewers than simply Micron shareholders. In its commentary on HBM merchandise for AI, administration stated its manufacturing capability is totally booked for all of calendar yr 2024 and the complete calendar yr 2025.

That means clients like Nvidia are shopping for numerous HBM from Micron for no less than the following year-and-a-half. This is to satisfy their very own buyer calls for — tech giants like Microsoft, Alphabet, Meta, and Oracle, and a rising checklist of different corporations — in a expertise arms race to improve present knowledge facilities and construct new ones for AI supremacy.

To be clear, Micron is commonly a few steps faraway from final end-market system gross sales. This signifies that any modifications in large tech knowledge heart development can gradual, and the last word change in demand for reminiscence chips can take a few quarters to trickle down and affect Micron’s monetary outlook. However, in the intervening time, commentary about manufacturing capability being tapped out via the top of subsequent yr is a strong indicator that the AI infrastructure spending spree has fairly a solution to go earlier than it begins cooling off.

A phrase of warning: While it is thrilling instances for traders in shares like Micron and Nvidia, simply how worthwhile they are going to be subsequent yr stays to be seen. Given that the expansion cycle remains to be pointing up, many chip shares aren’t as “expensive” as they seem on the floor when viewing them from the standpoint of revenue expectations. For subsequent yr, Micron inventory trades for simply 14 instances Wall Street analysts’ consensus expectation for usually accepted accounting rules (GAAP) earnings per share (EPS), and Nvidia for 35 instances subsequent yr’s anticipated EPS.

But the expansion development can, and ultimately will, morph right into a downturn. This is the best way it really works with any enterprise tied to manufacturing and {hardware} gross sales. Prudence when shopping for cyclical progress shares is at all times a good suggestion. But for the foreseeable future, Micron’s newest replace continues to present a inexperienced flag for the AI chip inventory race. All-out progress is all set to proceed for a while.

Should you make investments $1,000 in Micron Technology proper now?

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Randi Zuckerberg, a former director of market growth and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of administrators. Suzanne Frey, an govt at Alphabet, is a member of The Motley Fool’s board of administrators. Nicholas Rossolillo and his shoppers have positions in Alphabet, Meta Platforms, Micron Technology, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the next choices: lengthy January 2026 $395 calls on Microsoft and quick January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure coverage.

Micron Just Gave Another Green Flag for the AI Stock Race was initially printed by The Motley Fool

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